How to get a 12 month 2.62 APY CD with Ally Bank

Recently Ally bank changed their policy in regards to the pentaly you receive when closing out a CD. Before closing a CD early meant taking a penalty of  90 days worth of interest for 12 months or less, and 180 days of interest for a CD longer than 12 months. Today I read on Ally Banks website that their policy for all CD's is now a penalty of 60 days of interest. This makes for interesting possibility for higher rates on shorter terms. You ask yourself how can this be, the rates are set by the bank. Let me show you the math.


As of today Ally Bank website posted an interest rate of 1.74% APY for a 12 month CD. If we make a deposit of $10,000 in 12 month that CD would gain $174.50 in interest. Now lets look at Ally Bank CD rates for the 60 month CD. Right now Ally Bank is paying 3.14% APY for their 5 year CD. If you closed the 5 year CD after one year you would incur a penalty of  60 day worth of interest or $51.75. However you would still make a profit of $263.09 or in effect an APY of 2.62%. The same time period, $88.59 richer. 


Ally Bank 12 month CD
Initial deposit $10,000.00
Length of CD 1 year (12 months)
Interest rate 1.730% compound daily
Total annual yield 1.745%
Annual Percentage Yield (APY) 1.745%
Ending balance $10,174.50

Ally Bank 5 year CD after 12 months
Initial deposit $10,000.00
Length of CD 1 year (12 months)
Interest rate 3.100% compound daily
Total annual yield 3.148%
Annual Percentage Yield (APY) 3.148%
Ending balance $10,314.84

Penalty is calculated as follow
Current Balance in account multiplied by interest rate, divided by 365 days, and then multiplied by penalty time.
10,000 x 0.031 /365 x 60= 51.75

5 year CD after 1 year = $10,314.84
60 day penalty = $51.75
5 year CD after penalty $10263.09 or 2.595%, APR 2.629% APY
Difference you would earn from the 12 month CD = $88.59

Happy investing